Busting the myths of debt recovery

Facing unpaid invoices will be a disrupting time for any business.  With the added administration, distraction and impact on your cash flow, addressing debts at an early stage is key for stability, however we appreciate that tackling your customers or suppliers can be daunting.  You may be concerned about the cost, the detrimental effect on your commercial relationships or that the debt is too small or old to be recovered.

Brian Kirby, Head of our Debt Recovery department, discusses several of the most common myths surrounding debt recovery, addressing the concerns and putting your mind at rest as to how we can support you in getting your cash flow back on track.

1). Chasing the debt will ruin your commercial relationship

One of the key concerns that we face is that any chasing of an unpaid invoice will cause a rift between you and your customer or supplier.  There is certainly a fine balance to be achieved when requesting payment, and the right debt recovery firm will approach each of your debtors differently, depending on your relationship and the future you wish to maintain with them. 

We often find that a Letter Before Action (LBA) from a respectable solicitor politely yet firmly explaining that there is a debt owed will be enough for the debtor to come forward and either pay or open up discussions for a payment plan.  Without an LBA, you could continue to chase the debt with no success for the foreseeable future, which in turn will also impact the relationship as it could halt any future orders.  By addressing the fact that there is an outstanding debt, you are demonstrating that you take financial matters seriously, instilling respect in your debtor.

In order to avoid or support situations such as this, it is important to start any commercial relationship on the right foot with the appropriate terms and conditions detailing how and when payment is expected and the consequences should this not be followed. 

2). Debt recovery will cost more than the debt I’m owed

No matter the size of the debt you are owed, it is money that is due to you for goods or services that you have provided and you are entitled to chase that payment. 

Using the right debt recovery firm can be extremely cost effective and our unique pricing structure isn’t based on hourly rates or the size of the debt.  There are other financial benefits to instructing us to take this process off your hands.  The initial minimal outlay for the Letter Before Action will be significantly less than the cost to your business for writing off the debt, and the message that sends to your debtor for any future outstanding payments.  Also, while you are spending your time chasing the unpaid invoices to no avail, this distracts you and your team from other matters within the business that could be improving your profitability.

3). Instructing debt recovery solicitors will be too difficult and time consuming

You may be concerned that instructing a legal firm will require hours of sorting paperwork, the use of complicated legal jargon and inevitably be more hassle than the debt is worth.

We have a simple, straight forward instruction process requiring the company name, address, email address, copy of invoices or a statement if there are multiple invoices, and copies of any previous correspondence regarding the debt.  We then use our skills, expertise, experience and our internal systems to manage the debt on your behalf and take the burden from you.

4). My business is too small for debt recovery experts

No debt is too small for debt recovery support, and the same can be said for the size of business.  For smaller businesses, looking externally could be seen as more important as you may not have the internal resources or expertise to carry out the appropriate procedures to secure your debt.  Every penny counts for every business, which is why outsourcing debt recovery at an early stage is a sensible way to secure payments owed to you and to provide an overview of your whole credit control process to avoid similar situations in the future.

5). I believe I can manage the debt internally

Many businesses back themselves to recover their outstanding invoices but this can become a drain on your resources & “streetwise” debtors may seek to take an unfair advantage of a situation by finding excuses not to pay perfectly valid debts, which in turn puts pressure on your cash flow situation. We are familiar with dealing with these types of debtors & use our detailed knowledge and experience to extract those who won’t pay rather than those who may have legitimate reasons for withholding payment.

With our tailored software and practice management system, we can easily take this process off your hands and manage everything from start to finish, only seeking your input where necessary whilst preserving your relationship with your debtor.

6). I am concerned I will have to go to Court

When dealing with debt recovery, there is a slim possibility that the debt will remain unpaid and Court proceedings may need to be issued if our previous efforts have not enticed payment from your debtor.  We would consult at each step before this to discuss the sensible route for you, and will take into consideration your wishes about Court proceedings, should this happen.  

However, in our experience, we find that swift action against unpaid debts and invoices is the key to securing payment and avoiding the litigious stage of debt recovery.

If the case is required to go to Court, we can manage every step of the way.

7). The debt is too old and won’t be able to be recovered

There are circumstances when debts can go years without being collected.  Under the 1980 Limitation Act once a debt reaches six years old with no acknowledgement from the debtor that they admit the debt is due, that debt becomes statutorily barred and so formal legal action cannot be taken.  You can apply to the Court to have the limitation extended and in situations such as this, we can assist you with the application process.

This Limitation Act is one of the many reasons why acting fast to secure your outstanding payments is vital to protect your cash flow and ultimately your business.  To have your questions answered about your outstanding debts or to review your credit control processes, you can contact Brian Kirby or our Debt Recovery team on 023 8071 7421 or email briankirby@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.